State Housing Agency Leadership Forum

AFFORDABLE HOUSING FINANCE • June 2008

QUESTION	What is your biggest concern in 2008, and how is your agency addressing the problem?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	The lack of liquidity in the marketplace stemming from the subprime crisis. This liquidity deficiency has put tremendous pressure on our limited resources (both private-activity bonds and low-income housing tax credits [LIHTCs]) and strained our abilities to meet the rising demand we face for safe, decent, affordable housing. The market pressures have resulted in more critical management of our private-activity bond and housing credit resources, and the search for alternative taxable products to supplement our tools.
Steve Auger, executive director, Florida Housing Finance Corp.	Current market trends. Tax credit prices are down dramatically; bonds are not pricing at the levels that we’ve enjoyed through 2007; and Florida is experiencing declining revenues, which has tightened the state budget and will mean fewer state affordable housing dollars than we’ve received in the last several years. We’re addressing this issue through the use of the state trust fund dollars we have at our disposal.
Susan F. Dewey, executive director, Virginia Housing Development Authority	Access to adequate capital under favorable terms and conditions. We are facing two challenges: a shortage of tax-exempt bond allocation to meet unprecedented loan demand from first-time homebuyers; and difficulty in selling mortgage securities under favorable terms and conditions due to the continued dysfunction of the credit markets. We have addressed our tax-exempt issuance problem in part through state legislative changes giving VHDA a larger formal share of the state volume cap. However, that alone is not enough, so we are continuing to work through the National Council of State Housing Agencies (NCSHA) to promote legislation to increase the federal cap for housing bonds along with other bond law changes.
DeShana Forney, executive director, Illinois Housing Development Authority	I have two major concerns. [One is] is addressing Illinois’ rising foreclosure rate. IHDA is working with local housing counseling organizations, mortgage lenders, and bankers to implement the expansion of the governor’s Homeowner Assistance Initiative to help more families access affordable refinancing and avoid foreclosure. [The other is] creating and preserving affordable housing for low-income individuals, families, seniors, and persons with disabilities, and persons facing homelessness or at-risk of homelessness, despite adverse market conditions and limited resources. IHDA is working with public and private partners statewide on this issue.
Doug Garver, executive director, Ohio Housing Finance Agency	The high rate of foreclosures. We see the effect in the tightening of mortgage credit and insurance and also in declining home values and an increase in vacant homes. We have partnered with several state agencies to increase foreclosurecounseling efforts. We anticipate that our First-Time Homebuyer Program will continue to experience strong demand, especially with the new Ohio Heroes program that offers special financing for police officers, first responders, health-care workers, and teachers.
Pete Ramsel, executive director, Missouri Housing Development Commission	The rapidly changing economic conditions and how they will directly affect the production of rental housing as well as our homeownership program. We have had to adapt to changing market conditions more than ever. This has required a lot of brainstorming with staff and outside experts to assess market conditions and adjust our programs to fit those conditions. We have maintained the same goals as before of providing affordable rental housing and homeownership opportunities.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	Tax credit pricing and the resulting funding gaps in projects. We have issued a policy to address those gaps in collaboration with project sponsors. A couple of key points on the policy—we are looking for “shared solutions,” where developers go back to their other funding sources and explore additional funding to meet any gaps in financing. Also, developers will need to examine how much of their fee they have deferred and if there are any other cost savings that can be arrived at.

QUESTION	What is the best move that your agency has made in the last 12 months?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	We started a comprehensive strategy for broadening the education of others in our state about private-activity bonds, focusing on the ways in which we use this resource and the benefits we can offer communities who partner with us. The returns on investment have already been significant for our state, with more communities understanding how to more fully use this valuable and limited resource.
Steve Auger, executive director, Florida Housing Finance Corp.	Florida has been a new-construction state for many years, but during the last year, we’ve begun intensive dialogue on key actions needed to preserve affordable rental housing. Florida’s partnership with the MacArthur Foundation has helped us initiate this shift toward preserving units, especially those serving extremely low income and special-needs populations. In 2008, Florida Housing looks to move toward implementing a comprehensive approach to this issue.
Susan F. Dewey, executive director, Virginia Housing Development Authority	We have continued to work very closely with our numerous stakeholder advisory groups as we steer the difficult course through the market turmoil. This enabled us to maintain broad support for the state legislative change that increased our share of the state tax-exempt volume cap. It has also enabled us to make necessary ongoing changes to our home-purchase programs in a manner that is least disruptive to our private business partners and most equitable for the first-time homebuyers we serve.
DeShana Forney, executive director, Illinois Housing Development Authority	Establishment of our G.I. Loans for Heroes Program. When Congress authorized state HFAs to waive the first-time homebuyer mortgage revenue bond requirement for veterans last year, we immediately began work on a complementary program utilizing our state’s resources to provide below-market interest rate, firstand second-mortgage financing, and closing-cost/down payment assistance for these borrowers, as well as active-duty personnel. The program received NCSHA’s 2007 Annual Award for Program Excellence and the Institute of Real Estate Management’s Chicago Chapter 2008 Premier Award for Innovative Marketing Campaign.
Doug Garver, executive director, Ohio Housing Finance Agency	OHFA has been able to work collaboratively with other state agencies through an array of partnerships to address foreclosure prevention. For example, OHFA is a partner in the Ohio Save the Dream Campaign that includes a statewide foreclosure prevention hotline with referral to housing counselors and pro bono legal assistance. We have built housing counseling capacity by becoming a HUD Counseling Intermediary and [receiving] a grant from the National Foreclosure Mitigation Counseling Program.
Pete Ramsel, executive director, Missouri Housing Development Commission	We have done a good job of anticipating some of the challenges that we are now facing and have hired personnel and maintained relationships with financial experts that are highly qualified to deal with those challenges. This has made us confident that we are prepared to move forward with important programs despite increasingly difficult challenges.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	The agency undertook a major revision of its qualified allocation plan (QAP)—the first in many years—and did so through an open, participatory process with agency partners and the development community involved.

QUESTION	In this depressed economy, how are you encouraging affordable housing production?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	CHFA is focused on product development and modifications designed to leverage taxexempt private-activity bonds with taxable bonds, thereby serving more households. These new CHFA products include higher loan-to-values than may be available elsewhere and also offer refinance alternatives to borrowers facing high mortgage payments. In Colorado, the foreclosure crisis has led to increased demand for rental housing. We are working with developers to provide multifamily rental housing in tight markets.
Steve Auger, executive director, Florida Housing Finance Corp.	Florida Gov. Charlie Crist proposed a budget this year that included extra affordable housing dollars as a component of his economic stimulus package. While we don’t expect to receive as much state funding this year as we have during the past few years, due to Florida’s current revenue downturn, the Legislature recognizes the value of affordable housing in reviving Florida’s economy, and we expect they will provide as much affordable housing funding as they can.
Susan F. Dewey, executive director, Virginia Housing Development Authority	For more than 35 years, VHDA has prudently managed our lending programs in a manner that has built our capacity to provide substantial internal program subsidies. Therefore, we are currently able to use $20 million in annual internal subsidies to leverage $288 million in lending capital so as to provide very attractive lowinterest loan programs to meet a wide array of critical housing needs. For example, we are able to provide substantial low-interest multifamily financing to help developers offset some of the impact of declining tax credit prices.
DeShana Forney, executive director, Illinois Housing Development Authority	We are working with developers who have solid and successful track records and firm financial commitments to make sure the strongest projects are approved. We also recognize the need to invest additional resources to make sure developments that meet the governor’s Comprehensive Housing Plan priorities are able to move forward. Illinois is fortunate to have a large number of experienced developers who can navigate through tough economic conditions.
Doug Garver, executive director, Ohio Housing Finance Agency	The agency is remaining flexible with our programs and continuing to listen to our partners and customers. We work to incorporate what we are hearing in new initiatives that fit the needs of those who use OHFA’s homebuying programs.
Pete Ramsel, executive director, Missouri Housing Development Commission	The short-term economic situation not only provides challenges, it also creates a greater need for affordable housing. To meet this demand, we are working with developers to find innovative ways to efficiently produce affordable housing without sacrificing quality. We are reunderwriting all of the projects that we have approved for tax credits in 2008, and providing additional gap financing. Thank God we have a state LIHTC. The significance of our state housing credit has taken on new meaning as we adjust to federal credit pricing changes.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	We are pushing affordable housing development as economic development. We believe that it is more important than ever to make investments in affordable housing development. If we need to be more flexible or put more subsidy on the table to make deals happen, we are committed to doing that.

QUESTION	What is the biggest change to your low-income housing tax credit program’s QAP this year?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	CHFA has a multi-year approach to educating the developer market about green building that we implemented this year. The first step was to integrate some environmental sustainability factors into our QAP. We are also in the process of surveying the community about their level of knowledge, use, and the cost of green building, so that we may target our educational efforts in subsequent years.
Steve Auger, executive director, Florida Housing Finance Corp.	We’ve added point incentives for green building features. We’ve also included a priority to fund developments that have HOPE VI funding. Last year, we set aside roughly 10 percent of our allocation for preservation transactions, targeting those with project- based rental assistance funding, and we continued that setaside this year.
Susan F. Dewey, executive director, Virginia Housing Development Authority	We made a number of changes to our 2008 QAP, the most significant being: • Increasing the point category for EarthCraft or LEED (green building) certification from 15 to 30 points; • Adding a 25-point category for developers who agree to use a VHDA-certified property management company to manage the development; • Adding a 15-point category for units that meet Universal Design standards; and • Changing the criteria so that developments financed with taxexempt bonds will only be eligible for tax credits if no more than 50 percent of the bonds are retired in the first seven years. A forum has been scheduled for June 17 to discuss possible changes to the 2009 QAP.
DeShana Forney, executive director, Illinois Housing Development Authority	The new QAP provides incentives for developers to incorporate housing for supportivehousing populations into affordable housing developments. IHDA will award points to developers who include at least 10 percent of the units in a development for specialneeds households at income levels below 30 percent of the area median income. The QAP encourages developers to enhance accessibility for persons with mobility impairments beyond what is required under current guidelines. The QAP also permits points for green development, including a range of innovative energy systems, such as geothermal heating or solar power.
Doug Garver, executive director, Ohio Housing Finance Agency	This year, OHFA removed points for individual site and market attributes. Instead the agency is using a comprehensive approach in ranking sites. The increased focus on the quality of sites and market is resulting in higher-quality applications.
Pete Ramsel, executive director, Missouri Housing Development Commission	Our biggest changes revolve around reducing costs while maintaining the quality, durability, and energy efficiency of the product that we finance. We have decreased our developer fee and the maximum development cost parameters. We have again re-stated and clarified our housing priorities and selection criteria.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	With the overhaul of our QAP, we enhanced our focus on preservation and supportive housing, and created a Green Building Initiative.

QUESTION	What effect is the drop in LIHTC prices having on projects in your state? How is your agency responding?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	We have seen an increase in the financing gaps of those projects to which we awarded reservations in 2007. To address these gaps, we have agreed to consider the following on a case-bycase basis for those projects: • Waiving the cost basis limits • Extending the carry-forward date to allow developers the opportunity to solidify equity pricing and firm up financing for projects that received reservations last year • Removing the QAP guideline that indicates that developers returning previously awarded credits will be penalized in future applications • Waiving the $1.1 million annual reservation cap • Allowing requests in excess of $100,000 in annual credit without requiring re-competing.
Steve Auger, executive director, Florida Housing Finance Corp.	We are fortunate in Florida because we still have many strong markets in which investors seem to be interested. We have not yet seen many of our 2007 awards returned, although we know that there are some transactions out there that are in jeopardy, particularly those with less sophisticated or less experienced development teams.
Susan F. Dewey, executive director, Virginia Housing Development Authority	It is too soon to know what effect the lower credit prices are having on developments in Virginia. There may be several developments that won’t be financially feasible and the credits will be returned. Those credits will then be reallocated to new developments.
DeShana Forney, executive director, Illinois Housing Development Authority	The drop in LIHTC pricing has made it difficult for developers to finance their projects because of lower equity raises. As costs rise, developers are seeking more tax credits and other gap resources, causing IHDA to fund fewer projects. Maintaining open communication with syndicators allows IHDA to remain aware of current market conditions. IHDA’s staff is reviewing each submission using conservative, yet flexible, underwriting standards that reflect current conditions.
Doug Garver, executive director, Ohio Housing Finance Agency	At present, few, if any, projects have been delayed by the drop in LIHTC prices. Any impact on 2008 projects has yet to be seen, since the applications are still being reviewed. OHFA recently released a strategy paper (available at www.ohiohome.org) with more specific guidance for current applicants. The agency will continue to monitor the market and consider further changes in the future, if needed.
Pete Ramsel, executive director, Missouri Housing Development Commission	It has made it difficult for many projects to remain feasible as they were first submitted. MHDC recommends proposals in December and gives conditional approvals shortly after the first of the year, earlier than any other HFA. The timing of our process this year coincided with the drop in LIHTC prices. As a result, projects that were approved in January are being re-worked by the developers and re-underwritten by the staff. We are asking developers to provide new loan and equity commitments in proof of their ability to proceed. We are asking developers to defer some portion of their developer’s fee. We believe that most approved developments will be able to proceed with some increased gap financing from MHDC.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	We have closely studied both the projects with allocations of credit from the prior year that have not closed and the applications received in this year’s funding round. For those funded that have not closed, the agency has issued guidance providing for a shared solution to their funding gaps. Applications submitted this year are still being evaluated, but in making our funding decisions we will be looking to ensure the deal is financially feasible at the lower credit pricing.

QUESTION	Does the decline in LIHTC investing mean the program needs to be overhauled? What program changes would you most like to see?
Milroy Alexander, executive director and CEO, Colorado Housing and Finance Authority	CHFA has worked closely with our national trade organization, NCSHA, and other LIHTC allocating agencies to develop a list of recommendations that would improve the efficiency and effectiveness of the LIHTC program. These are not tied directly to the decline in investing, but rather reflect our years of experience with the program. These recommendations have been included in legislation being considered by Congress, and include such items as fixing the credit rate at either 4 percent or 9 percent rather than floating.
Steve Auger, executive director, Florida Housing Finance Corp.	We’d like to see some of the changes that have been proposed on a national level that give states more flexibility with the LIHTC program. On the state level, we’ll continue to look at our underwriting criteria to ensure that we are being appropriately flexible in addressing the recent changes in investor demand.
Susan F. Dewey, executive director, Virginia Housing Development Authority	We don’t believe that the program needs to be overhauled. Rather, we hope that the proposed modernization legislation in Congress will enhance the program to allow states to better administer the program.
DeShana Forney, executive director, Illinois Housing Development Authority	IHDA is confident that we will weather the current crisis and build financially sound developments across the state. However, we need the resources to respond appropriately to market conditions. Recently, Rep. Charles Rangel (D-N.Y.) introduced a bill to increase the LIHTC authority by an additional 20 cents per capita. The legislation would also temporarily increase mortgage revenue bond authority to refinance subprime loans, provide loans to first-time homebuyers, and construct low-income rental housing. IHDA endorses these efforts, in addition to a national Housing Trust Fund.
Doug Garver, executive director, Ohio Housing Finance Agency	The past few years have been very kind to LIHTC investments. The current pricing may be returning us to a more sustainable level. However, the current environment may call for a complete overhaul of the program. The proposals put forward by NCSHA are a good means to improve the program.
Pete Ramsel, executive director, Missouri Housing Development Commission	Missouri is very fortunate to have a state LIHTC, and because we do, most of our developments will remain feasible. We will be challenged to maintain real affordability. MHDC will remain committed to the preservation of project-based rental assisted housing. We have lobbied hard for the higher of a statewide median income or an area median income. We have 77 counties in our state where a two-wage earner family making minimum wages are over-income pursuant to current area income limitations.
Deborah VanAmerongen, commissioner, New York State Division of Housing and Community Renewal	I do not believe that the decline in pricing points to a need for the program to be overhauled. The declines have to do with problems in other financial sectors, the LIHTC program’s fundamentals are still strong. The housing bond and credit modernization measures are needed now more than ever.

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